Steinberger: Fair Tax = Jobs!
By John Steinberger | Is anyone pleased that South Carolina has a 12.1% unemployment rate? Can anyone point to economic measures in place which will lead to robust job creation?
To the contrary, there are federal measures which will likely increase the ranks of the unemployed. If the federal health care legislation passes in its current form, new taxes will be imposed on employers who don’t provide medical insurance and individuals who don’t purchase medical insurance, which will induce more layoffs and curtail consumer spending. On Jan. 1, 2011, all federal tax rates will rise to pre-2001 rates, a massive tax increase.
South Carolina will need to enact pro-growth legislation at the state level which will give entrepreneurs an incentive to start businesses here and current employers an incentive to expand their payrolls. To further enhance economic growth in the state, we need economic policy which encourages consumer spending.
The South Carolina FairTax Act (H.3992) provides the incentives needed to boost job creation and consumer spending. The bill eliminates South Carolina’s 7% personal income tax and 5% corporate income tax by taking away the nearly 300 exemptions which currently exist in the state sales tax code.
The bill is sponsored in the House by Rep. Rex Rice (R-Pickens) and Rep. Joey Millwood (R-Spartanburg). A companion bill is being authored by Sen. Larry Grooms (R-Berkeley) and has the backing of Sen. Mike Rose (R-Dorchester) and Sen. Tom Davis (R-Beaufort).
A recent study on state tax policies, “Rich States, Poor States” by Art Laffer and Steve Moore, compared the nine states without a personal income tax to the nine states with the highest personal income tax rates (Ohio came in the ninth spot at 8.24%, not far from South Carolina’s 7% rate).
During the 1997-2007 time frame, the zero income tax states enjoyed a 20% edge in both Gross State Product and Personal Income growth, as well as doubling the high income tax states in employment growth. The authors observed that state income taxes slow job creation and have a negative impact on consumer spending.
The Laffer study also shows a comparison between neighboring states Tennessee and Kentucky, neither of which had a personal income tax in 1979. When Kentucky imposed a personal income tax in 1980, the two states were even in per capita income. By 1996, Tennessee (which still was without a personal income tax), enjoyed a $2000 advantage in per capita income!
These are among the tangible benefits of passing the South Carolina FairTax Act:
- It provides immediate financial incentive for existing businesses to expand and out of state businesses to relocate to South Carolina. Small businesses, which currently pay the 7% personal income tax rate, create most of the new jobs in South Carolina.
- It eliminates state taxes on businesses and lowers production costs of goods and services. Business-related expenses will not be subject to sales tax under the South Carolina FairTax Act.
- It boosts consumer confidence. The 2003 federal income tax rate reductions led to an immediate rise in consumer spending. The overall rate reduction related to the South Carolina FairTax Act is more than twice as great as the 2003 reduction.
- It treats all industries and services the same, creating a level playing field.
- It prevents the double-taxation which exists under our current tax code.
- It will lure entrepreneurs and wealthy retirees to South Carolina, boosting home sales and benefiting local economies.
Why not create the conditions which enable South Carolina to enjoy a single-state economic recovery? Why wait for a tax study committee to issue its report? Let’s act now – ask your legislators to support the South Carolina FairTax Act!
Editor’s Note: The author is a Charleston resident and past winner of the Post and Courier’s “Golden Pen” award. For more information on the SC FairTax Act, click here.
Comments
By Soft Sigh From Hell on December 4th, 2009 at 7:05 am
“Business-related expenses will not be subject to sales tax under the South Carolina FairTax Act.”
A reasonable sounding and mostly reasonable provision that would in fact be a loophole big enough to float Cleopatra’s barge through, a figurative example given instead of “supertanker” for its allusion to luxury. The new Suburban every year, all its guzzled gas, the football tickets and lavish 5-star restaurant suppers(”entertaining clients”), heck the lake or beach houses (ditto), the cell phones, vacations (”marketing”), half the McMansion’s building (”office”), the “escort” service (”client entertainment”), etc.–all “business.” The businessman could live practically untaxed. The very intent one suspects.
“Fair” Tax, like any and all other one-pill cure-alls, is filled with complexities just below the surface and is promoted mostly by zealots. Can we please instead have some well-intended, nuanced, critical and balanced deeper thinking before deciding on any new tax policy?
By Liberty For Me on December 4th, 2009 at 7:31 am
This isnt hard to figure out..less taxe more growth….Politicians know this.They dont care.They just want the power over the people
By Ell on December 4th, 2009 at 8:05 am
Soft Sigh: Doesn’t look like you understand the Fair Tax at all. Mr. Businessman still has to pay when he purchases items just like the rest of us. His business just doesn’t have to pay twice or three times which gets passed on to the consumer. Since there is no tax form to be filled out, the “deductions” you suggest are irrelevant. The END CONSUMER “pays” the tax. It is a much better system than what we currently have. If you think taxes are too high, start electing officials that will lower spending and get back to what the Constitution mandates.
By laney on December 4th, 2009 at 1:24 pm
IF fair tax is passed, whose gonna pay for all those new 25,000 Obama/IRS hirelings?
By Nathan Earle on December 4th, 2009 at 5:25 pm
John,
I like the basic idea of the FairTax, but I don’t think it goes far enough. Much of the business tax burden comes in the form of county-level taxes on commercial property — a nasty side-effect of the tax-swap deal. Unless some equity is restored in the area of property taxes, the FairTax will not be enough to encourage businesses to locate or expand in SC.
By K Trane on December 4th, 2009 at 10:35 pm
I think more needs to be done to research the possible effects of a Fair Tax. Would it deter our tourism industry if we had (for example) a 20% sales tax? What would it do to low-class families? Would it allow yankees to buy summer homes in South Carolina and claim they are South Carolina residents to circumvent their state’s income tax? I haven’t read a great deal about the Fair Tax, but if they can cover most of these issues, it would be great to see South Carolina as the first state to be successful in this area.
Soft sigh, when you spur business growth it not only increases white collar jobs, it increases blue collar jobs as well. It seems all the luxuries you named would be taxed by the Fair Tax.
Nathan, you make a great point.
By Adakin Valorem on December 4th, 2009 at 11:37 pm
“IF fair tax is passed, whose gonna pay for all those new 25,000 Obama/IRS hirelings?” Laney posted at 1:24pm
Laney, the answer is that those 25000 new hires won’t be needed. PresBO can simply move the more than 100,000 existing IRS employees over to Border Patrol solving an other problem.
On the other hand, all visitors be they legal or illegal, would be paying a share of our taxes for us whenever they buy something at retail. The FairTax expands the tax base to all consumers while incentivizing savings, investment, education and JOB creation.
By PalmettoCPA on December 5th, 2009 at 10:22 am
The money to run the government has to come from somewhere. Changing the hands and pockets doesn’t change the amount.
Cut spending, and you can cut rates. The goal should be the reduction in government expenses, which will in turn reduce the amount of government revenues/debt.
Trying to change the system without addressing these basic issues is just tilting at windmills.
By Ron on December 5th, 2009 at 2:28 pm
mega dittos Palmetto CPA,
You’re right on!!!
Ron
By John Steinberger on December 5th, 2009 at 4:59 pm
I have to weigh in on this now! FairTax will lower the cost of delivering goods and services. Any taxes on businesses are passed on to consumers in the retail price. States without income tax have a higher per capita income.
Why would anyone want to retain our state income tax?
Ask candidates for Governor and state legislature to explain why we need an income tax in South Carolina.
By 2 cents on December 6th, 2009 at 12:42 pm
When have taxes ever been fair? Talk about an oxymoron.
By Ron on December 7th, 2009 at 10:33 pm
Like the calls for “fair trade” instead of “free trade,” the FairTax is a fraud because it is based on the fallacy that government theft (taxation) should be done in a “fair” manner instead of eliminated altogether.
By Ron on December 7th, 2009 at 10:37 pm
Strangely absent from the list of co-sponsors of H.R. 25 is Congressman Ron Paul(R-TX). Representative Paul has consistently been named the “taxpayers’ friend.” If the FairTax proposal was as friendly to taxpayers as its proponents say it is, I would expect Congressman Paul’s name to be first on the list of co-sponsors.
By Ron on December 7th, 2009 at 10:40 pm
FairTax advocates claim that their plan would repeal of the 16th Amendment. However, all H.R. 25 does is repeal Subtitle A of the Internal Revenue Code of 1986 that relates to income taxes and self-employment taxes and Subtitle C that relates to payroll taxes and the withholding of income taxes. The only mention of the 16th Amendment in H.R. 25 is when it says: “Congress further finds that the 16th amendment to the United States Constitution should be repealed.”
To repeal the 16th Amendment would require a constitutional amendment. Can Congress be relied on to pass a constitutional amendment that repeals the 16th amendment after a national sales tax has already been enacted? And even if Congress passed a constitutional amendment, it would still have to be approved by three-fourths of the states. Without the repeal of the 16th Amendment, what is to prevent an income tax from being imposed again after a national sales tax has been enacted?
By Ron on December 7th, 2009 at 10:41 pm
The national retail sales tax rate under the FairTax plan is 23 percent. That is on top of state sales taxes that are currently collected by forty-five states. That is on top of the sales tax that many cities and counties also collect. That is on top of the special taxes that exist on hotel rooms in most areas of the country. I suppose that a national retail sales tax would also apply to gasoline. There is no mention of the federal gas tax anywhere in the Fair Tax Act of 2005. No list of taxes that are supposed to be eliminated under the FairTax includes the federal gas tax. Does this mean that there will be an additional 23 percent tax on each gallon of gasoline?
By John Steinberger on December 13th, 2009 at 8:04 am
Ron – the national FairTax rate is designed to be revenue-neutral. Whether the federal government should continue spending at current levels is the topic of another debate. Obviously, you did not read the post, because it did not refer to the federal FairTax bill. It was about eliminating the South Carolina income tax by doing away with the 300 exemptions in our sales tax code.
Nihilists like you aren’t capable of doing anything anything to actually advance the cause of liberty!
By Bob on December 24th, 2009 at 9:01 am
John- what has your so called fair tax got to do with liberty? To the contrary Fair txx scheme is yet another move backed by the rich to make the “rich richer”- playing on the ignorance of the average taxpayer.